2016 (10) TMI 1273 - AT - Income Tax

Valuation of land on conversion into stock u/s 45(2) - reliance on Registered Valuer s Report - reference under section 55A - HELD THAT - Reference was made to the valuation officer in order to determine the fair market value as on date of conversion on the pretext that the fair market value as declared by the assessee which was backed by Registered Valuer Report was higher which is not correct. The issue arising in the present appeal is squarely covered by the ratio laid down by CIT Vs. Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT which in turn has been followed by the Tribunal in Mrs. Anjali Bharat Kabra Vs. ITO 2016 (11) TMI 744 - ITAT PUNE relating to assessment year 2009-10 order dated 26.08.2016. Accordingly there is no merit in substitution of fair market value submitted by the DVO since in the pre-amended provisions of section 55A the value lesser than the value declared by the assessee cannot be adopted by way of reference under section 55A of the Act. Reversing the order of CIT(A) the additional ground of appeal raised by the assessee is allowed.

Summary

Issues involved:
1. Valuation of land on conversion into stock under section 45(2)
2. Acceptance of valuation made by Registered Valuer
3. Adoption of capital gains and business profits
4. Justification of adopting fair market value of land based on DVO report
5. Admissibility of additional ground of appeal against DVO valuation

Issue 1: Valuation of land on conversion into stock under section 45(2)

The appellant contested the valuation of land on conversion into stock under section 45(2) at Rs. 89,07,486/-, differing from the Rs. 1,04,24,000/- claimed based on a Registered Valuer's Report. The Assessing Officer referred the valuation to a Government Approved Valuer, resulting in a fair market value of Rs. 72,85,432/-. The difference between the values declared by the assessee and the DVO was added as business income, reducing capital gains. The CIT(A) upheld this decision with slight variations in capital gains and business income.

Issue 2: Acceptance of valuation made by Registered Valuer

The appellant argued that comparable instances supported the Registered Valuer's valuation, which the CIT(A) did not appreciate. The appellant maintained that the Registered Valuer's valuation of Rs. 1,04,24,000/- should have been accepted, but the authorities relied on the DVO's assessment.

Issue 3: Adoption of capital gains and business profits

The appellant declared business profits and long-term capital gains based on the Registered Valuer's valuation. However, the Assessing Officer referred the valuation to the DVO, resulting in a lower fair market value. This led to adjustments in the declared capital gains and business profits, which the CIT(A) upheld, albeit with minor changes.

Issue 4: Justification of adopting fair market value of land based on DVO report

The Assessing Officer's decision to adopt the fair market value based on the DVO report was challenged by the appellant. The appellant argued that the reference to the DVO was invalid under Section 55A since the value declared was higher than the DVO's assessment. Citing a Bombay High Court ruling, the appellant contended that Section 55A should only be invoked when the declared value is lower than the fair market value.

Issue 5: Admissibility of additional ground of appeal against DVO valuation

The appellant raised an additional ground of appeal challenging the reference to the DVO for valuation. The appellant argued that the reference was unjustified as the declared value was higher. Relying on legal precedents, the Tribunal allowed the additional ground of appeal, emphasizing that in cases where the declared value exceeds the fair market value, invoking Section 55A is inappropriate. The Tribunal reversed the CIT(A)'s decision in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, emphasizing the inappropriateness of adopting the DVO's valuation when the declared value exceeded the fair market value. The decision was based on legal precedents and the interpretation of Section 55A of the Income-tax Act, 1961.